To examine the global implications of domestic growth patterns in Asia, I analyze saving-investment balances, the composition of national savings, and the determinants of the evolution of household saving rates. During 2000-08, household saving rates (relative to household income) have risen gradually in China and India but fallen sharply in Korea. Corporate savings have surged across Asia during this period, becoming the main component of gross national savings in the region. In terms of sheer magnitudes, China's national savings and current account surpluses dominate the region's saving-investment balances. China accounts for just under half of GDP in Asia ex-Japan, but accounts for 60 percent of total gross national savings and nearly 90 percent of the current account surplus of the region. Finally, I discuss some policy implications that come out of the analysis on how to shift the patterns of growth, especially in China, from a welfare-enhancing perspective.
Handle: RePEc:nbr:nberwo:15169
Template-Type: ReDIF-Paper 1.0
Title: Market Valuation of Accrued Social Security Benefits
Classification-JEL: D91; E6; G1; G12; H55
Author-Name: John Geanakoplos
Author-Name: Stephen P. Zeldes
Note: AG AP EFG ME PE
Number: 15170
Creation-Date: 2009-07
Order-URL: http://www.nber.org/papers/w15170
File-URL: http://www.nber.org/papers/w15170.pdf
File-Format: application/pdf
Publication-Status: published as Market Valuation of Accrued Social Security Benefits, John Geanokoplos, Stephen P. Zeldes. in Measuring and Managing Federal Financial Risk, Lucas. 2010
Abstract: One measure of the health of the Social Security system is the difference between the market value of the trust fund and the present value of benefits accrued to date. How should present values be computed for this calculation in light of future uncertainties? We think it is important to use market value. Since claims on accrued benefits are not currently traded in financial markets, we cannot directly observe a market value. In this paper, we use a model to estimate what the market price for these claims would be if they were traded.

In valuing such claims, the key issue is properly adjusting for risk. The traditional actuarial approach - the approach currently used by the Social Security Administration in generating its most widely cited numbers - ignores risk and instead simply discounts "expected" future flows back to the present using a risk-free rate. If benefits are risky and this risk is priced by the market, then actuarial estimates will differ from market value. Effectively, market valuation uses a discount rate that incorporates a risk premium.

Developing the proper adjustment for risk requires a careful examination of the stream of future benefits. The U.S. Social Security system is "wage-indexed": future benefits depend directly on future realizations of the economy-wide average wage index. We assume that there is a positive long-run correlation between average labor earnings and the stock market. We then use derivative pricing methods standard in the finance literature to compute the market price of individual claims on future benefits, which depend on age and macro state variables. Finally, we aggregate the market value of benefits across all cohorts to arrive at an overall value of accrued benefits.